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Answer:
Dear BuyandHolder,
Yes.
The economist is correct. We currently have what is
known as a negative yield curve.
As
you know, the word yield refers to the percentage
return on an investment. The yield curve is
a visual presentation of the relationship between
bond yields and their maturity lengths.
Typically,
the longer a bond's maturity, the greater the interest
rate or yield. In other words, those who buy bonds
with long maturities are rewarded for tying up their
money -- they are compensated for the perceived additional
risk that comes with investing for extended periods
of time.
On
the other hand, short-term bonds usually yield less
because your money is returned in a shorter length
of time.
If
short-term rates are lower than long term rates, the
yield curve is said to be positive. If short-term
rates are higher than long term rates, then the yield
curve is said to be negative. If there is very
little difference, then it's a flat yield curve.
The
yield curve is shown on a graph. At the bottom of
the graph, a horizontal line, going from left to right,
starts with the shortest maturities and continues
over days, months or years. For example, the yield
curve for Treasures published daily in USA Today,
is by month.
The
yields are then plotted on the vertical axis, typically
starting at 0% and going on up. The connecting dots
turn this into a yield curve.
Although
any fixed-income securities can be plotted on a yield
curve, the most common one illustrates U.S. Treasuries,
from the 3-month to the 30-year bond.
As
we go to press, the yields are as follows:
3-month
Treasury: 4.92%
30-year Treasury: 4.61%
10-year Treasury: 4.53%
This
is indeed an inverted or negative yield curve because
the short-term (3-month) Treasury is yielding more
than the two major long-term issues: the 10-year and
the 30-year bond.
Good
luck!
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